ASIA, 2 November 2025 — Gold prices have slipped below the symbolic US$4,000-per-ounce threshold following a key policy change in China and easing haven demand amid signs of U.S.–China trade thawing.
The tipping point came when China’s Ministry of Finance announced the end of a longstanding tax incentive on gold sales effective from 1 November. Retailers can no longer offset value-added tax (VAT) when selling bullion purchased from the Shanghai Gold Exchange, or when processed into other forms, including coins, bars, jewellery and investment products.
The tax change increases the cost of acquiring gold for consumers in China, a country that plays a major role in global bullion demand. The move is a bid to bolster government revenues amid slower economic growth and property-market softness, but it has rattled investor sentiment in precious metals.
Meanwhile, broader market sentiment has shifted. The recent surge in gold, driven at one point above US$4,000 an ounce, had been supported by strong central-bank buying, inflation concerns and geopolitical tension. But as global risk sentiment has improved, and with signs of progress in U.S.–China economic discussions, safe-haven demand has started to wane.
What This Means for Asian Markets and Investors
For investors and market participants in Asia, several implications stand out:
- Demand pressure in China: As one of the world’s largest bullion markets, higher local costs may suppress retail buying and dent physical-demand growth in Asia.
- Policy risk spotlighted: China’s move signals that authorities are willing to adjust incentive regimes even for sectors perceived as strategic, reminding investors to monitor regulatory risk.
- Commodity ripple effect: A sharp pull-back in bullion may reduce that hedge-asset appeal in portfolios, potentially prompting reallocation into equities or alternative assets across Asian markets.
- Margin and manufacturing concerns: Gold-producing firms and regional partners may face margin pressure if prices retreat further, something to watch in Asia’s supply-chain-linked mining and refining sectors.
Key Questions Ahead
- Will gold find support near the US$3,900 level, or could it test lower near US$3,700 or US$3,600 as technical momentum falters?
- Will China compensate for the tax change with other incentives (e.g., jewellery subsidies, duty-free quotas) to stabilise demand?
- Will central banks continue buying gold at the same pace — in Asia especially — or will physical inflows moderate in light of weaker retail demand?
- Could the renewed U.S.–China dialogue reduce systemic risk, and thus dampen the “safe-haven” premium for gold, which has been a driver of recent strength?
In summary, while the gold market had enjoyed a powerful run, the combination of a policy pivot in China and softening risk sentiment appears to be cooling momentum. For Asian investors and commodity-linked firms, the message is to monitor both regulatory shifts and demand dynamics closely, as the bullion story transitions from euphoria toward adjustment.
